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Saturday, December 12, 2009

Did You Get Your 401(r) Royalty Check Yet? What The Heck is That?

I recently got a teaser email that was touting a 401(r) royalty check. First let me share with you some highlights about this investment that for the most part is true, and then I'll tell you what a 401(r) check really is. Here are a few points the email (from our friends at Personal Finance) was touting:

Not many Americans have heard of this secret money strategy.

Unlike IRA or 401(k) plans, 401(r) lets you draw checks at any time, at any age and with no income requirements of any kind. I strongly believe that every man, woman and child should be taking advantage of this strategy.

Paychecks can be $10,000, $20,000, $50,000 or more Depending on your particular situation. The best news is, they are largely tax free (you may have to pay tax on 10 - 20% of the money)!

These normally aren't publicized like traditional IRA or 401(k) retirement plans. Perhaps that is why so few know anything about them.

This amazing asset can give you a nearly tax-free income you can start collecting at any time.

Forbes magazine said that they are "a good place to be during this market funk. They offer good yields, tax breaks and strong growth potential."

Barron's stated, these income streams are a “pay off for taxpayers... offering double-digit returns today.”

"Enjoy largely untaxed income" —Forbes Magazine

OK, so what exactly are 401(r) Royalty payments? Why are they the best place for your savings now? How can you get your name on the list to start getting paid this mostly tax-free income?

Actually I think the 401(r) is a play on the Royalty word. There is no such section in the IRS code that I can find. The 401 section ends with (o). What they are really pushing is MLPs. I have written about them before many times, and am really fond of the investment vehicle!

Actually with MLPs you are deferring the taxes, and you will have to pay them later. However, you can defer them for a long time and maybe even pass your MLPs onto your heirs.

If you’re not familiar with MLPs, they are publicly traded partnerships called Master Limited Partnerships. They focus mainly on the energy arena. Primarily dealing with natural resources like coal and oil. Most of the large and stable MLPs are pipeline companies. They are set up similarly to REITs. MLPs pay no corporate tax as long as they pass along essentially all of their income to unitholders (the limited partners, those who own shares of the MLP). MLPs Generally pass along a lot more money than they make, and you can defer your taxes on a lot of it. Of course, "no taxes" and "deferred taxes" are very different. Check with your tax advisor and do your research on MLPs. They may well fit into your investment strategy.

MLPs can be somewhat difficult to get info on. Check out my new "How To Analyze Anything" video course for simple strategies and discover free online tools to learn all you need to know about MLPs (and much more). To get your Free MLP Report go here.